Peeling back the Medicare Advantage onion

Peeling back the Medicare Advantage onion

April 24, 2019
By Richard Jones

According to CMS, a record 22.4 million seniors will be covered by a Medicare Advantage (MA) plan in 2019, up 11.5 percent from 2018. One reason that MA plans are increasingly popular among consumers is because coverage typically includes a richer choice of benefits than traditional Medicare, often providing lower premiums and out-of-pocket costs.

However, the popularity of MA among seniors is only part of the story behind the MA market’s tremendous growth in recent years. To fully understand what’s driving the trend, it’s important to consider some of the additional market forces that are impacting payers, providers and consumers.

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The fee-for-service model has resulted in unsustainable inflation and increases in total medical costs for our country and individuals, and provider reimbursement rates set by Medicare’s reimbursement are not increasing fast enough to meet inflation. Historically, provider revenues have been based on individual episodes of care, where clinicians are incentivized to maximize their billings in order to improve revenues. Payers, however, benefit financially when the cost of care is lower. The fee-for-service model has thus created friction between payers and providers because their revenue goals are completely opposite. This tension has resulted in payers pushing more healthcare financial risk to providers.

In recent years, CMS has increased funding to newer value-based care models, including MA plans. This transition has heavily influenced the growth of alternative healthcare delivery models such as value-based incentive contracting and collaborative partnerships, which are changing the traditional payer-provider relationship.

Forced innovation
The introduction of MA plans and other value-based care payment models has effectively forced payers and providers to adopt innovative behaviors in order to achieve their revenue goals. By aligning payments to the concepts of improved quality and outcomes for consumers, both payers and providers share financial goals and must now focus on the delivery of appropriate and cost-effective care that leads to improved outcomes and satisfied patients. Providers realize that better outcomes — and financial rewards — are not necessarily tied to maximized billings, and payers understand that they won’t automatically improve revenue or outcomes by simply eliminating unnecessary and wasteful medical services. Instead, payers and providers are forced to collaborate and cooperate with one another to drive financial and clinical success.

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